Listen: Sam, Ben Carlson And US discussed on The Ray Lucia Show
"On your radio and television, nationwide and coast to coast plots of ground to cover today, obviously, the stock market has been very very volatile lately. Something we start got lulled into thinking would never happen again. But it's happening. May continue to happen. You need to be prepared for that. Now, so many people are looking at the end of this year, and perhaps even thinking about retiring next year. I read a phenomenal article. By Ben Carlson, what if you retire at a stock market peak? I mean, we're obviously not at peak today. But we're up there pretty darn high whatever you're retiring next year. Or a stock market peak in the future. She we don't get to pick many times our actual retirement date. And even if we did what have you picked a great retirement date, at least you thought. And. The market peaked out in the first or second or third or sixth month of your retirement and started to decline. Here's what Ben Carlson wrote. It's excellent our read from it meets Sam. Sam's entire family as a terrible, terrible luck. When it comes to the timing their retirement. Sam's great, grandparents retired at the end of one thousand nine hundred twenty eight over the ensuing three years or so the stock market would drop close to ninety percent. While the US economy would contract. Nearly thirty percent of the great depression. In one thousand nine hundred thirty seven stock market would be cut in half. And a couple of years later World War Two would commence. Sam's grandparents remember that was the great grandparents. Sam's grandparents didn't fare much better. Retiring at the tail end of nineteen seventy two this was right before a brutal bear market, which would see stocks cut in half from nineteen seventy three to nineteen seventy four. I remember that era. Because that's when I entered the financial business selling mutual funds was easy or any kind of annuities or anything like that. The purchasing power of their portfolio. This is his grandparents now what also be ravaged by inflation which would run at a rate of one hundred and twenty one percent over the first nine years of their retirement more than nine point two percent. A year. From nineteen seventy three to nineteen Eighty-one the S and P five hundred would lose thirty three percent of its value in real terms. Finally, SAM's parents retired at the end of nineteen ninety nine feeling pretty good about where they stood following the enormous tech fuel bull market of the nineteen ninety s in the first decade of their retirement. They would witness the US stock market go down by half on two separate occasions with corresponding recessions in each instance, over the first decade of their retirement, the S and P five hundred would fall close to ten percent in total. Less than twenty years later. Sam is now considering retiring early. After catching the bug. Sam's. Biggest worry is the possibility of retiring just before a market crash like the rest of her family. I guess this is Samantha. Since it's her family should Sambi worried. What if you retired just before stock market peak? So then Carlson went on to run some numbers and any I assumed a sixty forty portfolio of stocks US, stocks and five-year treasury. So sixty percent stock forty percent five year treasuries. And they decided to take out four percent of the portfolios value at the start of each year. For a living expenses and do so for the remainder of thirty years. They're presumed retirement. And they're also going to sume a million dollar equivalent, so forty thousand bucks per year out of a million bucks. So if you're retired in nineteen twenty nine with this hypothetical million dollars thirty years later, you would have withdrawn one million two hundred and forty seven dollars. With an ending value of two point two million bucks. By nineteen fifty eight retired in one thousand nine hundred seventy three. You would have started with a million bucks and ended with five point five million. Wow. And that of course is because. Right after the seventy three seventy four bear market. Launched one of the great bull runs in all of history. In two thousand through two thousand seventeen your million bucks would only been worth one million three hundred and five thousand dollars. So he goes on to say this you can see in each case the ending market value for the portfolio is higher than the original amount. Even after accounting for annual draws obviously the ending balances very quite a bit because the nineteen Seventy-three start date benefited from higher starting interest rates in bonds and in the nineteen eighties. Nineties bull market. And the two thousand retirement is still a work in progress. Now, he used a four percent simple. Withdrawal taking out a flat four percent of the portfolio every single year, regardless of the portfolios performance or the economic conditions at the time. Clearly during the great depression. There was deflation remember that? What thirty percent or so deflation? And then there was huge inflation in the seventies. So he re ran the numbers. Remember, sixty forty mix stocks and bonds, or stocks and treasuries. Doesn't account for taxes or fees? But this next one does assume four percent withdrawal. Adjusted each year at the consumer price index. Now, the numbers are a million dollar start value in one thousand nine hundred twenty nine. By nineteen fifty eight the ending value one million nine hundred and forty four thousand dollars. That's fascinating. Isn't it? You went through a ninety percent decline in the stock market. Yet, you still ended up thirty years later with double the money. You started with probably a one and a half two percent rate of inflation. On the principal. And then the nineteen Seventy-three through two thousand and two ending date. A million dollars. Translated into six hundred thirty nine thousand five hundred seventy two dollars. So he didn't leave the kids richer than you. Vacuum left him a lot poorer. But nonetheless, you still didn't run out of money, you withdrew three point eight million dollars from your portfolio. And the starting date two thousand ending in two thousand seventeen a million bucks. Still translated into a million and ninety thousand dollars over a seventeen year time period of eight hundred and eighteen thousand dollars of inflation adjusted withdrawals. So that's that's pretty impressive. I think. So what are the takeaways from this exercise? I retiring just before a stock market peak could be ruinous so your financial help. But it doesn't have to be you. See this portfolio was balanced. It had forty percent in bonds and sometimes many times when the stock market is imploding, due to recessions interest rates are coming down and the value bonds are going up. So bonds tend to tame some of that volatility. Now, there's there's other takeaways to as you've heard me discuss many times before on this program.."